America's National Personal (or personal national) Debt

Gosh, has it really been three weeks? Time just flies when you're passed out in an Edgar Allen Poe-esque manner in a drainage gutter in Baltimore...or when you're having fun. Or something. I know that newspaper-style opinion can be a little dry, but I have commitments for school and blah blah blah... I'm gonna start another one like that soon. Here's another piece that will run in the Beacon either this week or next week. I didn't want to wait for the issue to come out, I figured I'd gone long enough without posting. Freaking enjoy. --Chris

Proponents of fiscal responsibility have long bemoaned excessive government spending and the ballooning of America’s national debt, which will soon soar past $9 billion. Whether the debt is the fault of tax-and-spend Democrats or pork-barrel Republicans (or both) makes no difference. The point is, America’s debt problem is pressing and real, and the culture of red ink has spread like a plague from balance sheets in Washington DC to checkbooks in Walla Walla, Washington and everywhere in between.

In May of 1985, Americans put one-ninth of their disposable income towards savings. Fast-forward to 2005 and 2006, and America’s personal savings rate has fallen all the way to negative 1-2% (this is not to say that Americans do not have any money stashed away, but that they spent more money then they made during this period).

How can this troubling trend be justified in the face of our current economic reality? As America’s 78 million baby boomers prepare to retire, benefits from government programs that were previously viewed as untouchable will nearly certainly be reduced. Federal Reserve Chairman Ben Bernanke has said in October that “reform of our unsustainable entitlement programs” should be made an immediate priority (Social Security is projected to go bankrupt in 2029). If unaltered, government spending on Social Security and Medicare will increase from seven to thirteen percent of the United States economy by 2030. The logical reaction to this would be an augmentation in savings to prepare for the uncertain days ahead. Instead, the exact opposite has happened, and savings have dropped-off.

It would be easy to call this a trend—a temporary period of excitement over eBay and iPods, a fleeting era of reckless spending in a marketplace burgeoning with new, exciting technologies. Once America transitions from the wire-ring notebook to the notebook computer, putting away part of every check towards one’s retirement will go back into style.

However, this is not a trend, but a long-term behavior-based problem, as many Americans’ accumulated credit card debt indicates. According to Demos, a national research and consumer advocacy group, consumer credit-card debt has nearly tripled in the period between 1989 ($238 billion) to 2005 ($800 billion). Additionally, according to Gail Cunningham of the Consumer Credit Counseling Service of Greater Dallas, the average American family now owes more than $9,000 in credit debt. Mounds of plastic-induced debt is not what people think of when they visualize the American Dream, but it is the sad truth.

Part of the problem is that for many, credit card numbers and security codes for online shopping roll off the fingers easier than the passwords to access email. Step one in fixing this spending problem is taking a more necessity-based approach to shopping. If you are sad or depressed, you need to have a meaningful talk with another person, not a massage chair from Brookstone. If you want to celebrate, have some friends over or pop open champagne, don’t buy a new sweater. Make a budget and stick to it, and stop spending your check whenever payday rolls around.

And dismiss the notion that mere thriftiness is the key to staying in the black. Although minding minor expenses is important, a daily coffee from Starbucks is unlikely to tip your finances in one direction or the other. As economist Amelia Tygai observes, “The real advice is that the big things add up. The fact is, one-third of Americans live in a house they can't really afford. Even more of us drive a car we can't afford. Fifty percent of us aren't saving a single dollar for retirement, let alone the 10% of our salaries that most experts recommend. So clipping a few coupons isn't going to build that nest egg.”

The seeming lack of affordable housing in America may be the effect of fiscal recklessness, not its cause. The reason high-end apartment complexes and luxury condos outnumber cheaper, more practical housing units are explained by the fact that Americans are more concerned with displays of status than with financial solvency. New, dangerous mortgages have exploded in popularity, and help people buy homes while guaranteeing a back load of debt. Interest-only loans, which first appeared in 2004, now make up eight percent of all residential mortgages.

Although it would be an extremely humbling experience, moving back in with one’s parents for a year or two after college makes (dollars and) sense for graduates. It’s either that or a too-expensive brownstone townhouse in the Back Bay subsidized by Visa, American Express, et al. Be un-American: hold off and save.